Important Information About Paying Taxes on Your Side Gig

Paying taxes on your side hustle can be tricky, especially if you’re new to the world of earning extra income outside of your regular job. With the rise of the gig economy, more Americans are taking on side hustles to supplement their income. Whether it’s driving for a ride-sharing service, selling handmade crafts online, or renting out a room in your home, these side gigs can provide a valuable source of additional income. However, many people may not realize that they are required to report this income to the Internal Revenue Service (IRS) and pay taxes on it.

According to a survey from CareerBuilder, 29 percent of all paid workers have a side hustle. This means that a significant portion of the workforce is earning income that may not be reported on a traditional W-2 form. In most cases, if you are a single taxpayer under the age of 65 with a total income of at least $12,950, or a married couple filing jointly with a total income of $25,900, you are required to report all income to the IRS. This includes income from side hustles, even if it’s just a part-time or temporary job.

The IRS has a simple rule when it comes to reporting side hustle income: if you have net earnings from self-employment of $400 or more from gig work, you must file a tax return. This means that even if your side hustle is just a small source of income, you are still required to report it to the IRS. Failure to report earned income is considered tax fraud and can result in penalties, including failure-to-pay penalties and accuracy-related penalties.

Reporting extra income on your taxes can be done using IRS forms such as Schedule C for self-employment income or Schedule E for rental income. If you worked with a partner on your side hustle, you may need to file a partnership tax return. It’s important to keep track of all expenses related to your side hustle, as these can often be deducted from your taxable income, reducing the amount of tax you owe.

When it comes to paying taxes on your side hustle income, it’s essential to plan ahead. If your side income is not covered by your regular paycheck withholding, you may be required to make quarterly estimated tax payments. This means setting aside a portion of your side hustle earnings to cover these payments throughout the year. Working with an accountant to prepare a tax projection can help you determine how much you need to set aside and when to make these payments.

While paying taxes on your side hustle may seem like a hassle, it’s important to remember that careful recordkeeping and compliance with IRS regulations are key to minimizing your tax bill and avoiding penalties. By staying organized and proactive in managing your side hustle income, you can ensure that you are meeting your tax obligations and keeping your finances in order.